PRECIOUS-Gold holds gains on short-covering, fragile stock markets

BENGALURU, Oct 16 (Reuters) - Gold rose on Tuesday as investors unwound some bearish positions after prices jumped to a 2-1/2-month high in the previous session, driven by a global equities sell-off.

Spot gold was up 0.4 percent at $1,231.20 per ounce at 1343 GMT, having peaked on Monday at $1,233.26, its highest since July 26.

U.S. gold futures were up 0.4 percent at $1,234.60.

“Gold is still holding the gains, very close to the 100-day moving average. A close above that level could be a positive sign and provoke more short-covering and push prices higher,” said Commerzbank analyst Carsten Fritsch.

Speculators who trade on technical signals regard a break above the 100-day moving average as a bullish sign. Prices were trading above the 100-day moving average of $1,227.

Data last week showed that speculators had increased their short positions and traders said the recent rally forced many to abandon those bets on lower prices.

Tensions between Saudi Arabia and Western nations, plus potential divisions in Europe over Italy’s budget, were also helping gold, Fritsch added.

Global equities edged higher after sharp declines over the past couple of days, but gains were capped as markets remained nervous because of factors including the U.S.-China trade tussle, tensions between Saudi Arabia and western powers, stalled Brexit negotiations and concerns over China’s economy.

“The stock markets are still fragile and there are warnings that we could see further losses,” Fritsch said. “Any increases in stock markets are being used as a selling opportunity. On that front, there is a lot of room for gold to rise further.”

Gold, usually viewed as a safe store of value during political and economic uncertainty, has fallen nearly 10 percent from its April peak as investors largely turned to the dollar as the U.S.-China trade war unfolded against a background of higher U.S. interest rates.

“The near-term technical posture for the yellow metal has dramatically improved (over) the past few sessions, which continues to invite the chart-based buyers,” Peter Hug, global trading director at Kitco Metals said in a note.

“Also, the recent volatility in world stock markets and some heightened geopolitical tensions are continuing to provide some demand for safe-haven gold.”

Holdings of SPDR Gold Trust, the largest gold-backed exchange traded fund, rose for a second straight session on Monday, rising 4.1 tonnes. Holdings have gained about 2.5 percent in the past seven days, which, some analysts said, is a shift in perception in sentiment among gold ETF investors. SPDR Gold holdings are down about 3.9 million ounces from a peak in April.

In other metals, Silver rose 0.8 percent to $14.77 an ounce, earlier in the session it touched its highest since Oct. 2 at 14.84.

Platinum was up 0.5 percent at $843 per ounce after touching its highest since July 10 at $850.10 on Monday, while palladium was down 0.2 percent at $1,081.50. (Reporting by Sumita Layek and Nallur Sethuraman in Bengaluru; Editing by David Goodman, Louise Heavens and Kirsten Donovan)